<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
EQUITY INNS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
EQUITY INNS, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1998
------------------------
NOTICE IS HEREBY GIVEN THAT the annual meeting of shareholders (the
"Annual Meeting") of Equity Inns, Inc. (the "Company") will be held at the
Homewood Suites hotel, 7855 Wolf River Parkway, Germantown, Tennessee, on
Thursday, May 14, 1998 at 10:00 a.m. Central Time for the following purposes:
1. To elect one Class I director to serve on the Board of Directors
until the Company's annual meeting of shareholders in 2001 or
until his successor has been duly elected and qualified
("Proposal One");
2. To consider and vote upon a proposal to amend Article 5 of the
Company's Second Amended and Restated Charter (the "Charter") to
increase the number of authorized shares of Common Stock from 50
million shares to 100 million shares ("Proposal Two");
3. To consider and vote upon a proposal to delete Article 7 of the
Charter, which limits the Company's consolidated indebtedness to
45% of the Company's investment in hotel properties, at its cost
("Proposal Three");
4. To consider and vote upon a proposal to amend Article 14(c) of
the Charter to conform Article 14(c) to other provisions in the
Charter relating to the Company's ability to preserve its status
as a real estate investment trust so long as its actions do not
prohibit the settlement of any transactions entered into through
the facilities of any national securities exchange registered
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or of the national market system of a national
securities association registered under the Exchange Act
("Proposal Four");
5. To consider and vote on a proposal to approve an amendment to the
Equity Inns, Inc. Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to, among other things, permit Independent
Directors (as defined herein) to elect to receive retainer and
meeting fees in the form of shares of Common Stock and increase
the number of shares that may be issued under the Directors' Plan
to allow for such elections; and
6. To transact such other business as may properly come before the
Annual Meeting and any adjournments thereof.
Only shareholders of the Company of record as of the close of business
on March 16, 1998 (the "Shareholders") will be entitled to notice of and to vote
at the Annual Meeting and any adjournments thereof. All Shareholders are
cordially invited to attend the Annual Meeting.
Enclosed as a part of this Notice of Annual Meeting is a Proxy
Statement, which contains further information regarding the Annual Meeting and
Proposals One, Two, Three, Four and Five.
BY ORDER OF THE BOARD OF DIRECTORS
HOWARD A. SILVER, SECRETARY
Memphis, Tennessee
April 2, 1998
IMPORTANT
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE
ANNUAL MEETING ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING
PROXY, AS SOON AS POSSIBLE, IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. SHAREHOLDERS
WHO ATTEND THE ANNUAL MEETING MAY VOTE IN
PERSON EVEN IF THEY HAVE ALREADY SENT IN A PROXY.
<PAGE> 3
EQUITY INNS, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1998
GENERAL INFORMATION
This Proxy Statement and the accompanying Form of Proxy and Notice of
Annual Meeting is furnished to the shareholders of Equity Inns, Inc. (the
"Company") in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board of Directors") for use at the annual
meeting of the Company's shareholders (the "Annual Meeting") to be held at the
Homewood Suites hotel, 7855 Wolf River Parkway, Germantown, Tennessee, on
Thursday, May 14, 1998 at 10:00 a.m. Central Time and at any adjournments
thereof. The mailing address of the principal executive offices of the Company
is 4735 Spottswood, Suite 102, Memphis, Tennessee 38117. This Proxy Statement
and the Form of Proxy and Notice of Annual Meeting, all enclosed herewith, are
first being mailed to the shareholders of the Company on or about April 2, 1998.
THE COMPANY
The Company is a Tennessee corporation organized as a self-administered
real estate investment trust ("REIT") to acquire equity interests in hotel
properties. The Company completed its initial public offering of its common
stock, $.01 par value (the "Common Stock") on March 1, 1994. The Company owns
its hotel properties through Equity Inns Partnership, L.P. (the "Partnership").
A wholly-owned subsidiary of the Company, Equity Inns Trust (the "Trust"), is
the sole general partner of the Partnership. The Company presently owns, through
the Trust, an approximate 95.1% equity interest in the Partnership.
The Company has elected to be taxed as a REIT beginning with its fiscal
year ended December 31, 1994. In order to qualify as a REIT under federal tax
provisions, neither the Company, the Partnership nor the Trust can operate
hotels. Prior to November 15, 1996, the Company's hotels were leased to Trust
Leasing, Inc., formerly named McNeill Hotel Co., Inc. ("Trust Leasing").
Effective November 15, 1996, all of the leases for the Company's hotels owned at
such date were assigned to Crossroads/Memphis Partnership, L.P. The Partnership
currently owns 89 hotels, 79 of which are leased to subsidiaries (collectively,
the "Interstate Lessee") of Interstate Hotels Company ("Interstate"), a publicly
owned hotel management company, and 10 of which are leased to Caldwell Holding
Company (the "Prime Lessee"), a subsidiary of Prime Hospitality Corporation
("Prime"), a publicly owned hotel company (the Interstate Lessee and the Prime
Lessee being, collectively, the "Lessees") pursuant to separate percentage lease
agreements which provide for rent payments equal to the greater of (i) fixed
base rent or (ii) percentage rent based in part on the revenues of the hotels
(the "Percentage Leases").
THE PROXY
Proxies are being solicited by and on behalf of the Board of Directors,
and the solicitation of proxies is being made primarily by the use of the mails.
The cost of preparing and mailing this Proxy Statement and the accompanying
material, and the cost of any supplementary solicitations which may be made by
mail, telephone, telegraph or personally by officers and employees of the
Company, will be borne by the Company. The Company has retained Corporate
Communications, Inc. to aid in the solicitation of proxies and to verify certain
records related to the solicitation of proxies at a fee of approximately $4,000
plus reimbursement of normal expenses.
Each outstanding share of the Company's Common Stock is entitled to one
vote. Cumulative voting of shares is not permitted. Only shareholders of record
at the close of business on March 16, 1998, the record date established by the
Board of Directors for the Annual Meeting (the "Shareholders"), will be entitled
to notice of, and to vote at, the Annual Meeting and any adjournments thereof.
At the close of business on March 16, 1998, the Company had outstanding
35,585,663 shares of Common Stock.
Each Shareholder giving a proxy has the power to revoke it either by
delivering written notice of such revocation to the Secretary of the Company
before the Annual Meeting or by attending the Annual Meeting and voting
<PAGE> 4
in person. The proxy will be voted as specified by the Shareholder in the spaces
provided on the accompanying Form of Proxy or, if no specification is made, it
will be voted in favor of the nominee for Class I director and each of Proposal
Two, Proposal Three and Proposal Four (as defined below). In voting by proxy
with respect to the election of one Class I director to serve until the annual
meeting of shareholders in 2001 or until his successor is duly elected and
qualified ("Proposal One"), Shareholders may either vote in favor of the nominee
or withhold their votes as to the nominee. Shareholders may not abstain with
respect to the election of directors. With regard to each of the proposals to
amend Article 5 of the Company's Second Amended and Restated Charter (the
"Charter") to increase the number of authorized shares of Common Stock from 50
million shares to 100 million shares ("Proposal Two"), the proposal to delete
Article 7 of the Charter ("Proposal Three"), the proposal to amend Article 14 of
the Charter ("Proposal Four"), and the proposal to amend the Company's
Non-Employee Directors' Stock Option Plan (the "Directors' Plan") as described
in more detail herein ("Proposal Five"), Shareholders may vote in favor of each
proposal, against each proposal or abstain from voting with respect to each
proposal.
Management of the Company requests that each Shareholder promptly vote,
sign and return a Form of Proxy, as transmitted herein, as soon as possible.
Beneficial owners of the Company's shares of Common Stock held in the name of a
broker or other intermediary may vote and revoke a previous vote only through,
and in accordance with, procedures established by the record holder(s) or their
agent(s).
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement does not constitute the solicitation of a
proxy, in any jurisdiction, from any person to whom it is unlawful to make such
proxy solicitation in such jurisdiction. The delivery of this Proxy Statement
shall not, under any circumstances, imply that there has not been any change in
the information set forth herein since the date of the Proxy Statement.
REQUIRED VOTE
Under Tennessee law, the Charter and the Company's bylaws (the
"Bylaws"), if a majority of the votes entitled to be cast are present at the
Annual Meeting, in person or by proxy, so as to constitute a quorum, (1) with
respect to Proposal One concerning the election of the Class I director, a
plurality of all the votes cast voting in favor of the nominee will elect the
nominee for director and (2) with respect to each of Proposals Two, Three, Four
and Five, if the votes cast in favor of the proposal exceed the votes cast in
opposition to the proposal, the proposal will be approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE FOR CLASS I
DIRECTOR AND FOR EACH OF PROPOSAL TWO, PROPOSAL THREE, PROPOSAL FOUR AND
PROPOSAL FIVE.
No specific provisions of the Tennessee Business Corporation Act, the
Charter or Bylaws address the issue of abstentions or broker non-votes.
Abstentions will not be counted "for" or "against" proposals, but will be
counted for the purpose of determining the existence of a quorum. Brokers
holding shares for beneficial owners must vote those shares according to the
specific instructions they receive from the owners. However, brokers or nominees
holding shares for a beneficial owner may not have discretionary voting power
and may not have received voting instructions from the beneficial owner of the
shares. In such cases, absent specific voting instructions from the beneficial
owner, the broker may not vote on these proposals. This results in what is known
as a "broker non-vote." "Broker non-votes" will not be counted as votes cast but
will be counted for the purpose of determining the existence of a quorum.
Because the election of directors is a routine matter for which specific
instructions from beneficial owners will not be required, no "broker non-votes"
will arise in the context of Proposal One. Votes "withheld" from a
director-nominee also have the
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<PAGE> 5
effect of a negative vote, since a plurality of the shares cast at the Annual
Meeting is required for the election of a director.
REPORTS OF BENEFICIAL OWNERSHIP
Under federal securities laws, the Company's directors, executive
officers and any persons beneficially owning more than ten percent of a
registered class of the Company's equity securities are required to report their
ownership of the Common Stock and any changes in that ownership to the
Securities and Exchange Commission (the "SEC") and to the New York Stock
Exchange (the "NYSE"), the exchange on which the Common Stock is traded. These
persons are also required by SEC rules and regulations to furnish the Company
with copies of these reports. Specific due dates for these reports have been
established, and the Company is required to report in the Proxy Statement any
failure to timely file such reports by those due dates by its directors and
executive officers during its 1997 fiscal year.
Based solely upon its review of the reports and amendments thereto
furnished to the Company or written representations from the Company's directors
and executive officers that such reports were not required from those persons,
the Company believes that all of these filing requirements were satisfied by the
Company's directors and executive officers during the 1997 fiscal year, except
for Phillip H. McNeill, Sr., the Company's Chairman of the Board and Chief
Executive Officer, David L. Levine, the Company's President and Chief Operating
Officer, and Phillip H. McNeill, Jr., the Company's Executive Vice
President-Development, each of whom inadvertently failed to timely file one such
report of beneficial ownership concerning acquisitions of units of limited
partnership interest in the Partnership by themselves or affiliates (for Messrs.
McNeill, Sr. and McNeill, Jr.) or shares of Common Stock (for Mr. Levine) during
1997.
OWNERSHIP OF THE COMPANY'S COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of December 31, 1997
regarding each person known to the Company to be the beneficial owner of more
than five percent (5%) of its Common Stock. The Company has no other class of
capital stock outstanding. Unless otherwise indicted, such shares of Common
Stock are owned directly and the indicated person has sole voting and investment
power.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1)
------------------- -------------------- ----------
<S> <C> <C>
Boston Partners Asset Management L.P.
One Financial Center, 43rd Floor
Boston, Massachusetts 02159 1,852,704(2) 5.3%
</TABLE>
- --------------------
(1) Based on shares of Common Stock outstanding on December 31, 1997.
(2) Based on information contained in Schedule 13G dated December 31, 1995 and
filed with the SEC on February 13, 1998. Boston Partners Asset Management
L.P. reported that it has shared voting and dispositive power with respect
to all such 1,852,704 shares of Common Stock.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock, as of January 31, 1998, by (i) each director and
director nominee of the Company, (ii) each executive officer of the Company and
(iii) all directors and executive officers of the Company as a group. Unless
otherwise indicated in the accompanying footnotes, all such shares of Common
Stock are owned directly and the indicated person has sole voting and investment
power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ---------------- ----------------- ----------------
<S> <C> <C>
Phillip H. McNeill, Sr. 1,243,412(1)(2) 3.5%(1)
James A. Thomas, III 138,295(3)(4) *
William W. Deupree, Jr. 23,000(3) *
Joseph W. McLeary 10,500(3) *
David L. Levine 31,864(5) *
Howard A. Silver 49,607(6) *
Phillip H. McNeill, Jr. 30,540(7) *
J. Ronald Cooper 7,570(8) *
Connie O. Parker 19,500(9) *
All directors and 1,552,731(1)(2)(3)(4) 4.4%(1)
executive officers as a (5)(6)(7)(8)(9)
group (nine persons)
</TABLE>
- -----------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Includes 764,867 units of limited partnership interest in the Partnership
("Units") held by Mr. McNeill or his affiliates, which Units are redeemable
at the option of Mr. McNeill at any time pursuant to redemption rights
("Redemption Rights"). The Units are redeemable on a one-for-one basis for
shares of Common Stock or, at the Company's option, an equivalent amount of
cash. The total number of shares outstanding used in calculating the
percentage of class assumes that none of the Units held by other persons
are redeemed for shares of Common Stock.
(2) Includes: (a) 4,580 shares owned by Mr. McNeill's wife; (b) 6,854 shares
owned by Mr. McNeill's children; (c) 15,218 shares owned by McNeill
Investment Company, Inc.; (d) 10,000 shares issued in December 1996 to Mr.
McNeill under the Company's 1994 Stock Incentive Plan (the "1994 Plan") and
which are subject to certain vesting requirements over a five-year period
from the date of grant; and (e) 484,518 shares issuable to Mr. McNeill;
170,546 shares issuable to Mr. McNeill through his ownership interests in
W/S, Inc.; 6,468 shares issuable to McNeill Hotel Partners I; 4,671 shares
issuable to PWH Realty; and 79,715 shares issuable to McNeill-Sullivan
Hospitality Corporation upon the exercise of Redemption Rights. Mr. McNeill
owns 90% of the capital stock of W/S, Inc. and 100% of the capital stock of
McNeill Investment Company, Inc. and McNeill-Sullivan Hospitality
Corporation. Includes 234,000 shares issuable upon the exercise of vested
options granted under the 1994 Plan. Excludes 156,000 shares of Common
Stock subject to options granted to
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<PAGE> 7
Mr. McNeill under the 1994 Plan, which options vest with respect to 78,000
shares in each of July 1998 and July 1999. Mr. McNeill is the Company's
Chairman of the Board and Chief Executive Officer.
(3) Includes an aggregate of 5,000 shares issued to each Independent Director
in March 1994 subject to certain restrictions. Such shares began vesting
with each Independent Director at the rate of 1,000 shares per year
beginning in 1994. Any restricted shares not vested when an Independent
Director ceases to be a director will be forfeited. Each Independent
Director will be entitled to vote and receive the dividends paid on such
shares prior to vesting. Includes 3,000 shares issuable upon the exercise
of vested options granted to each director under the Directors' Plan.
Excludes 1,000 shares of Common Stock subject to options granted to each
Independent Director under the Directors' Plan, which options vest in each
of April 1998 and April 1999.
(4) Includes (a) 1,200 shares owned by Mr. Thomas' wife, as to which shares Mr.
Thomas disclaims beneficial ownership; (b) 12,475 shares owned by Mr.
Thomas' daughters, as to which shares Mr. Thomas disclaims beneficial
ownership; (c) 19,370 shares in investment accounts over which Mr. Thomas
has or shares voting power and dispositive power; and (d) 2,250 shares
jointly owned by Mr. Thomas and his mother.
(5) Includes (a) 7,500 shares issued in December 1996 to Mr. Levine under the
1994 Plan and which are subject to certain vesting requirements over a
five-year period from the date of grant and (b) 397 shares owned by Mr.
Levine's wife. Excludes 60,000 shares of Common Stock subject to options
granted to Mr. Levine under the 1994 Plan, which options vest with respect
to 30,000 shares in each of July 1998 and July 1999. Mr. Levine is the
Company's President and Chief Operating Officer.
(6) Includes (a) 7,500 shares issued in December 1996 to Mr. Silver under the
1994 Plan and which are subject to certain vesting requirements over a
five-year period from the date of grant, (b) 1,640 shares owned by Mr.
Silver's wife and (c) 27,000 shares issuable upon the exercise of vested
options granted under the 1994 Plan. Excludes 18,000 shares of Common Stock
subject to options granted to Mr. Silver under the 1994 Plan, which options
vest with respect to 9,000 shares in each of July 1998 and July 1999. Mr.
Silver is the Company's Executive Vice President, Secretary, Treasurer and
Chief Financial Officer.
(7) Includes (a) 6,701 shares issuable upon the exercise of Redemption Rights
to Mr. McNeill, Jr., personally, (b) 18,949 shares issuable upon the
exercise of Redemption Rights to Mr. McNeill, Jr. through his ownership
interests in W/S, Inc. and (c) 1,557 shares issuable upon the exercise of
Redemption Rights to Mr. McNeill, Jr. through his ownership interests in
PWH Realty. Mr. McNeill, Jr. is the Company's Executive Vice
President--Development and is the son of Phillip H. McNeill, Sr.
(8) Includes (a) 3,070 shares owned by Mr. Cooper's adult children and (b)
1,500 shares owned by Mr. Cooper's wife, as to which shares Mr. Cooper
disclaims beneficial ownership. Mr. Cooper is the Company's Vice President,
Controller, Assistant Secretary and Assistant Treasurer.
(9) Includes 9,000 shares issuable upon the exercise of vested options granted
under the 1994 Plan. Excludes 6,000 shares of Common Stock subject to
options granted to Ms. Parker under the 1994 Plan, which options vest with
respect to 3,000 shares in each of July 1998 and July 1999. Ms. Parker is
the Company's Assistant Secretary.
PROPOSAL ONE - ELECTION OF CLASS I DIRECTOR
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Director Meetings. The business of the Company is under the general
management of its Board of Directors as required by the Bylaws and the laws of
Tennessee, the Company's state of incorporation. The Company's Charter
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<PAGE> 8
requires that a majority of the Company's directors must not be officers or
employees of the Company or affiliates of any advisor to the Company under an
advisory agreement, any lessee of the Company's property, any subsidiary of the
Company or any partnership which is an affiliate of the Company ("Independent
Directors"). There are presently four directors of the Company, including three
Independent Directors. The Board of Directors held four meetings during 1997,
and all of the Company's directors attended those meetings, except Mr. Deupree,
who was absent for one such meeting.
The Company presently has an Audit Committee and a Compensation
Committee of its Board of Directors. The Company has no standing Nominating
Committee of the Board of Directors, with the entire Board of Directors acting
in such capacity. The Company may, from time to time, form other committees as
circumstances warrant. Such committees have authority and responsibility as
delegated to them by the Board of Directors.
Audit Committee. The Board of Directors has established an Audit
Committee which currently consists of the three Independent Directors, Messrs.
Thomas, Deupree, and McLeary. The Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and non-audit fees and reviews the adequacy of the Company's
internal accounting controls. The Audit Committee met once in 1997, and all of
its members attended that meeting.
Compensation Committee. The Board of Directors has established a
Compensation Committee which currently consists of the three Independent
Directors. The Compensation Committee determines compensation for the Company's
executive officers, establishes salaries of and awards of performance-based
bonuses to the Company's executive officers, and determines awards of restricted
stock and grants of stock options under the Company's stock plans. The
Compensation Committee met once in 1997, and all of its members attended that
meeting.
COMPENSATION OF DIRECTORS
Until January 1, 1998, the Company paid no cash compensation to its
directors. Beginning January 1, 1998, each Independent Director's compensation
was increased so that each Independent Director will receive $12,000 annually,
payable the first month of each quarter in the amount of $3,000 and, in
addition, will receive $1,000 for each Board of Directors' meeting personally
attended. If approved, Proposal Five will authorize, among other things, the
Independent Directors to elect to receive such compensation in the form of
shares of Common Stock. See "Proposal Five--Amendment to Directors' Plan." Each
Independent Director receives, upon being elected a director, 5,000 shares of
Common Stock subject to certain restrictions. Such shares vest with each
director at the rate of 1,000 shares per year of service, beginning with the
commencement of service as a director. Each Independent Director is entitled to
vote and receive dividends paid with respect to the restricted shares of Common
Stock prior to vesting. Any Independent Director who ceases to be a director
will forfeit any restricted shares not previously vested. Messrs. Thomas,
Deupree and McLeary each has received 5,000 restricted shares of Common Stock,
which vest at the rate of 1,000 shares per year beginning in 1994. In addition,
since April 1995, each Independent Director receives an option under the
Directors' Plan to purchase 1,000 shares effective the date of the first meeting
of the Board of Directors following each annual meeting of the Company's
shareholders. The option price is the fair market value of the Common Stock on
the effective date of grant. The Company reimburses directors for their
out-of-pocket expenses in connection with their service on the Board of
Directors.
6
<PAGE> 9
NOMINEE FOR CLASS I DIRECTOR
The Company's Charter divides the Board of Directors into three classes
as nearly equal in number as possible, with each class serving a term of three
years. One class of directors is elected by the shareholders of the Company at
each annual meeting. The Board of Directors has set at four the number of
directors constituting the current Board of Directors, one of whom will be
elected at the Annual Meeting for the position of the Class I director.
The Company has no Nominating Committee of its Board of Directors, with
the entire Board of Directors acting in such a capacity. The Board of Directors
has nominated the present Class I director, Phillip H. McNeill, Sr., to serve as
Class I director for a three-year term expiring at the Company's annual meeting
of shareholders in 2001. The remaining members of the Board of Directors will
continue as members thereof until their respective terms expire, as indicated
below, or until their successors are elected and qualified.
If the nominee becomes unavailable or unwilling to serve the Company as
a director for any reason, the persons named as proxies in the accompanying Form
of Proxy are expected to consult with management of the Company in voting the
shares represented by them. The Board of Directors has no reason to doubt the
availability of the nominee for Class I director, and he has expressed his
willingness to serve as a director of the Company if elected by the Shareholders
at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE FOR CLASS I
DIRECTOR.
NOMINEE FOR ELECTION AS CLASS I DIRECTOR
(TERM EXPIRING 2001)
- --------------------------------------------------------------------------------
PHILLIP H. MCNEILL, SR., age 59, is Chairman of the Board of Directors
and Chief Executive Officer of the Company and has been President of McNeill
Investment Company, Inc., a diversified real estate firm, since 1977. Mr.
McNeill has also been Chairman of McNeill Hospitality Corporation since 1984.
From 1963 to 1977, he served in various capacities, including President and
Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage
banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President
and Director of the Memphis Mortgage Bankers Association and the Tennessee State
Mortgage Bankers Association and has been a director of National Bank of
Commerce since January 1997. He has been Chairman of the Board, Chief Executive
Officer and Director of the Company since its founding in 1993. Mr. McNeill is
the father of Phillip H. McNeill, Jr., the Executive Vice President--Development
of the Company.
COMMITTEES: None
- --------------------------------------------------------------------------------
INCUMBENT DIRECTORS - CLASS II
(TERMS EXPIRING 1999)
- --------------------------------------------------------------------------------
JAMES A. THOMAS, III, age 57, is Chairman of the Board of NewSouth
Capital Management, Inc., a registered investment advisory firm in Memphis,
Tennessee which manages approximately $1.6 billion in investment assets, a
position he has held since January 1985. He is a director of First Commercial
Bank of Memphis and a member of the Board of Trustees of Rhodes College. Mr.
Thomas has been a director of the Company since February 1994.
COMMITTEES: Audit, Compensation
7
<PAGE> 10
- --------------------------------------------------------------------------------
WILLIAM W. DEUPREE, JR., age 56, is a Managing Director of Morgan
Keegan & Company, Inc. and its parent company Morgan Keegan, Inc., a NYSE listed
company, positions he has held since 1985. Mr. Deupree joined Morgan Keegan &
Company, Inc. in 1972 and served as its President from 1985 to 1996. He is also
a director of NSA International, Inc., a provider of water filtration devices.
He is a member of the Regional Firms Advisory Committee of the NYSE, as well as
a member of the Board of Directors for the Securities Industry Association. Mr.
Deupree has been a director of the Company since February 1994.
COMMITTEES: Audit, Compensation
- --------------------------------------------------------------------------------
INCUMBENT DIRECTOR -- CLASS III
(TERM EXPIRING 2000)
- --------------------------------------------------------------------------------
JOSEPH W. MCLEARY, age 58, is Chairman of Executive Financial Services,
Inc., a private financial consulting and benefits administration firm, a
position he has had since 1997. From 1987 to 1997, he was Chairman and Chief
Executive Officer of Midland Financial Group, Inc., a publicly owned automobile
insurance company. From 1984 to 1987, he was president of McLeary & Co., a
company organized to manage a privately-held investment fund engaged in the
acquisition of small businesses in the Memphis, Tennessee area. From 1969 to
1983, he was President and Chief Financial Officer and a Director of Cook
International, Inc., a publicly owned agricultural commodities firm. Prior to
1969, he was employed by the Federal Reserve Bank of Atlanta. He has been a
director of SCB Computer Technology, Inc., a computer consulting corporation
whose shares are traded on The Nasdaq Stock Market, since January 1996. Mr.
McLeary has been a director of the Company since February 1994.
COMMITTEES: Audit, Compensation
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS BETWEEN THE COMPANY AND DIRECTORS
On November 14, 1997, the Company and several of its subsidiaries,
including the Trust and the Partnership, entered into an unsecured revolving
credit agreement in the maximum principal amount of $5 million (the "NBC Credit
Line") with National Bank of Commerce, Memphis, Tennessee ("NBC"). The NBC
Credit Line bears interest at an annual rate equal to the prime rate (8 1/2% at
December 31, 1997), and a commitment fee is payable equal to two-tenths of one
percent per annum on the unused portion of the commitment, calculated and
payable on a quarterly basis. The NBC Credit Line is supported by a guaranty
from the Company and the Trust to NBC. NBC is also a participating lender in the
syndication of the Company's three-year, $250 million unsecured line of credit
(the "Unsecured Line of Credit") administered by The First National Bank of
Chicago, with NBC having a $17.5 million participation in such syndication of
the Unsecured Line of Credit. Phillip H. McNeill, Sr., the Chairman of the Board
and Chief Executive Officer of the Company, is and has been a member of the
Board of Directors of NBC since January 1997.
8
<PAGE> 11
Mr. Deupree, who is an Independent Director and a member of the
Compensation Committee of the Company, is a Managing Director of Morgan Keegan &
Company, Inc. ("Morgan Keegan") and was President of Morgan Keegan from 1985 to
1996. Morgan Keegan was a managing underwriter of the Company's initial public
offering and certain follow-on public equity offerings and received investment
banking fees and other compensation in connection with those public offerings.
Morgan Keegan has also received fees in connection with providing financial
advisory services to the Company.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Company and the Partnership have entered into a number of
transactions with affiliates of Phillip H. McNeill, Sr., Chairman of the Board
and Chief Executive Officer of the Company.
Transactions with the Interstate Lessee. Prior to November 15, 1996,
Mr. McNeill was the sole shareholder of Trust Leasing, which was the lessee of
all of the hotel properties owned at such date by the Partnership. Effective
November 15, 1996, (i) Trust Leasing assigned its rights under each of the
existing Percentage Leases to the Interstate Lessee, and the Partnership and the
Interstate Lessee amended and restated the Percentage Leases in a Consolidated
Lease Amendment, and (ii) Trust Leasing transferred and assigned its assets,
including all leases between Trust Leasing and the Partnership, to the
Interstate Lessee pursuant to a Contribution Agreement dated October 4, 1996 by
and among Trust Leasing, Trust Management, Inc. ("Trust Management") and the
Interstate Lessee. Such transfer was made in exchange for units of limited
partnership interest in the Interstate Lessee. The sole general partner of the
Interstate Lessee is a wholly-owned subsidiary of Interstate, and Trust Leasing
and Trust Management are the only limited partners of the Interstate Lessee.
With limited exceptions, the sole general partner of the Interstate Lessee
exercises full, complete and exclusive discretion in management and control of
the Interstate Lessee, with Trust Leasing and Trust Management having no
participation or control over the business of the Interstate Lessee. The
1,957,684 partnership units of the Interstate Lessee received by Trust Leasing
and Trust Management in exchange for the contribution of their assets to the
Interstate Lessee, which were originally equal to an approximate 50% limited
partnership interest in the Interstate Lessee, are redeemable and exchangeable,
at the option of Trust Leasing and Trust Management, on a one-for-one basis for
shares of Common Stock of Interstate. In September 1997, Trust Leasing and Trust
Management exercised their redemption rights with respect to an aggregate of
800,000 partnership units of the Interstate Lessee and received 800,000 shares
of Common Stock of Interstate, all of which shares of Interstate Common Stock
have subsequently been sold. Prior to redemption, Trust Leasing's and Trust
Management's interests in the Interstate Lessee are not entitled to
distributions of income from the Interstate Lessee. Trust Management and Trust
Leasing are wholly owned by Phillip McNeill, Sr. For the period January 1, 1997
through December 31, 1997, lease payments by the Interstate Lessee to the
Partnership aggregated approximately $70,477,450 under the Percentage Leases,
and the Interstate Lessee had net income for such period of approximately
$7,730,080.
Rights of First Refusal and Options; Certain Acquisitions. The
Partnership presently has a right of first refusal to acquire one Hampton Inn
hotel owned by affiliates of Mr. McNeill located in San Antonio, Texas. The
right of first refusal requires that before the property is sold to a person or
entity other than the Partnership, the seller must first offer the property to
the Partnership on the same terms and conditions as the proposed sale to a third
party. Mr. McNeill also has agreed to grant the Partnership a similar right of
first refusal, as well as an option, on any future hotel developments controlled
by affiliates of Mr. McNeill, including a Hampton Inn hotel in White River
Junction, Vermont. The option will provide that the Company or the Partnership
may purchase any such hotel at any time 12 months after the opening of the hotel
for a price determined by appraisal. Management currently anticipates that any
property developed by an affiliate of Mr. McNeill will have achieved stabilized
operating performance and cash flows prior to the Partnership considering the
purchase of such property. The Partnership's decision with respect to whether to
exercise its rights of first refusal or options will be made by a majority of
the Independent Directors.
In 1997, the Partnership acquired four hotels owned by affiliates of
Mr. McNeill which were subject to similar rights of first refusal. On March 11,
1997, the Partnership acquired the Hampton Inn-Pickwick, Tennessee (the
"Pickwick Hotel") and the Hampton Inn - Southaven, Mississippi (the "Southaven
Hotel") for purchase prices (including
9
<PAGE> 12
cash and Units paid by the Partnership in connection with such acquisitions) of
approximately $2.1 million and $4.4 million, respectively. Such hotels were
owned by partnerships in which Mr. McNeill owned a 50% and 15% interest,
respectively. On June 25, 1997, the Partnership acquired the Hampton Inn-Destin,
Florida (the "Destin Hotel") and the Homewood Suites-Germantown, Tennessee (the
"Germantown Hotel") for purchase prices (including cash and Units paid by the
Partnership in connection with such acquisitions) of approximately $6.7 million
and $7.7 million, respectively. Such hotels were owned by a limited partnership
and a limited liability company in which Mr. McNeill owned a 25% and 18.3%
interest, respectively, and, in the case of the limited liability company, in
which Phillip H. McNeill, Jr., the Company's Executive Vice
President--Development, owned a 1.7% interest. In connection with such
acquisitions, Mr. McNeill and his affiliates received an aggregate of 86,327
Units for their portions of the purchase prices for such hotels. The Pickwick
Hotel and the Southaven Hotel were constructed for amounts aggregating
approximately $5.3 million, and the Destin Hotel and the Germantown Hotel were
constructed for amounts aggregating approximately $11.7 million. Each of these
acquisitions received the prior approval of the Independent Directors, and
fairness opinions and appraisals were received and reviewed by the Independent
Directors in connection with such acquisitions.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by a
wholly-owned subsidiary of the Company for the last three fiscal years to those
persons who (1) served as the Company's chief executive officer ("CEO") and (2)
were the Company's four other most highly paid executive officers during the
fiscal year ended December 31, 1997. None of the below-listed officers was paid
cash compensation by the Company prior to December 31, 1994. Effective January
1, 1995, each of the first three of the below-listed executive officers became
an employee of a wholly-owned subsidiary of the Company. Messrs. McNeill, Jr.
and Cooper became executive officers of the Company and employees of such
subsidiary in 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------- ----------------------------
RESTRICTED SECURITIES ALL
NAME AND STOCK UNDERLYING OTHER
PRINCIPAL POSITION (1) YEAR SALARY($) BONUS($) AWARDS($) OPTIONS(5) COMPENSATION
---------------------- ---- --------- -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Phillip H. McNeill, Sr. 1997 $225,000 $466,249(2) --- 390,000 ---
Chairman of the Board 1996 $225,000 --- $122,500(4) 390,000 ---
and Chief Executive Officer 1995 $175,000 $120,842(3) --- 390,000 ---
David L. Levine 1997 $150,000 $281,248(2) 60,000 $15,000
President and Chief 1996 $140,000(1) --- $ 91,875(4) 150,000 $ 6,462(1)
Operating Officer 1995 $110,000 $118,957(3) --- 150,000 ----
Howard A. Silver 1997 $145,000 $323,063(2) --- 45,000 $14,500
Executive Vice President, 1996 $135,000(1) --- $ 91,875(4) 45,000 $ 6,231(1)
Secretary, Treasurer and 1995 $100,000 $118,957(3) --- 45,000 ---
Chief Financial Officer
Phillip H. McNeill, Jr. 1997 $110,000 $ 93,748(2) --- --- $10,915
Executive Vice 1996 --- --- --- --- ---
President-Development(6) 1995 --- --- --- --- ---
J. Ronald Cooper 1997 $ 88,577 $ 62,500(2) --- --- $ 8,858
Vice President, Controller, 1996 --- --- --- --- ---
Assistant Secretary and 1995 --- --- --- --- ---
Assistant Treasurer(6)
</TABLE>
10
<PAGE> 13
- ---------------
(1) Includes benefits accrued under the Company's Executive Deferred
Compensation Plan (the "Deferral Plan"). Under the Deferral Plan,
participants may defer up to 25% of their base salary, bonus or both. A
matching contribution paid by the Company, equal to the lesser of the
amount deferred or 10% of base salary, is also credited to each
participant's account. For 1997, Messrs. Levine, Silver, McNeill, Jr. and
Cooper deferred $16,442, $14,500, $10,915 and $8,858, respectively. For
1996, Messrs. Levine and Silver deferred $6,462 and $6,231, respectively.
For 1997, matching contributions paid by the Company of $15,000, $14,500
$10,915 and $8,858 were credited to the accounts of Messrs. Levine, Silver,
McNeill, Jr. and Cooper, respectively. For 1996, matching contributions
paid by the Company of $6,462 and $6,231 were credited to the accounts of
Messrs. Levine and Silver, respectively.
(2) A portion of these bonuses, awarded to the Company's five executive
officers pursuant to the 1994 Plan, was paid in Performance Shares (as
hereinafter defined) of Common Stock. Such executive officers received
Performance Shares under the 1994 Plan as follows: (a) in the case of Mr.
McNeill, Sr., 30,325 shares of Common Stock which had an aggregate fair
market value of $466,249 on the date of valuation (January 23, 1998); (b)
in the case of Mr. Levine, 18,292 shares of Common Stock which had an
aggregate fair market value of $281,248 on such date; (c) in the case of
Mr. Silver, 7,500 shares of Common Stock which had an aggregate fair market
value of $115,313 on such date; (d) in the case of Mr. McNeill, Jr., 6,097
shares of Common Stock which had an aggregate fair market value of $93,748
on such date; and (e) in the case of Mr. Cooper, 4,065 shares of Common
Stock which had an aggregate fair market value of $62,500 on such date. The
balance of Mr. Silver's bonus was taken in cash.
(3) A portion of this bonus, awarded to the Company's three executive officers
pursuant to the Company's 1995 bonus pool (the "1995 Bonus Pool"), was paid
in shares of Common Stock. Such executive officers received (a) in the case
of Mr. McNeill, 8,866 shares of Common Stock which had an aggregate fair
market value of $104,175.50 on the date of issuance (January 4, 1996) and a
cash payment of $16,667, and (b) in the cases of each of Messrs. Levine and
Silver, 8,067 shares of Common Stock which had an aggregate fair market
value of $94,787 on the date of issuance (January 4, 1996) and a cash
payment of $24,170.
(4) As of December 11, 1996 (the "Date of Grant"), 10,000, 7,500 and 7,500
restricted shares of Common Stock were awarded to Messrs. McNeill, Levine
and Silver, respectively, subject to vesting. The awards vest with respect
to the shares at the rate of 20% per year on each of the first through
fifth anniversaries of the Date of Grant, provided that if the average fair
market value (defined as being the highest closing price of the Common
Stock on the NYSE, determined 30 days prior to the second anniversary of
the Date of Grant, equals or exceeds such fair market value as of the first
anniversary of the Date of Grant, the shares shall vest at the rate of 40%
per year on the second anniversary of the Date of Grant and at 20% on each
of the third through fifth anniversaries of the Date of Grant. At December
31, 1997, the value of the restricted shares owned by Messrs. McNeill,
Levine and Silver (based upon the closing market price of the Common Stock
on such date of $14.75) was $147,500, $110,625 and $110,625, respectively.
Prior to vesting, the recipients will have the right to receive dividends
with respect to such shares.
(5) The stock options were awarded pursuant to the 1994 Plan and vest at the
rate of 20% per year over a five-year period commencing on July 6, 1995.
The exercise price per share is $12.50, the closing price of the Common
Stock on The Nasdaq Stock Market (the market on which the Common Stock was
then traded on July 6, 1994, the effective date of grant of such stock
options).
(6) Each such officer became an executive officer of the Company in 1997;
hence, neither of such officers received compensation from the Company
prior to 1997.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of
options during the Company's 1997 fiscal year by the CEO and the Company's four
most highly-compensated executive officers and regarding unexercised options at
December 31, 1997. No separate stock appreciation rights ("SARs") were granted
during the Company's 1997 fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
--------------- ------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C>
Phillip H. McNeill, Sr. --- --- 234,000/156,000 $526,500/$351,000
David L. Levine 90,000 $210,819 ----/60,000 ----/$135,000
Howard A. Silver --- --- 27,000/18,000 $60,750/$40,500
Phillip H. McNeill, Jr. --- --- ---- ----
J. Ronald Cooper --- --- ---- ----
</TABLE>
- ---------------
(1) Represents the aggregate of the number of options multiplied by the
difference between $14.75, the fair market value of the Common Stock at
December 31, 1997, and $12.50, the exercise price for the options.
No stock options were granted to the Company's executive officers during
1997. All stock options shown above were granted on July 6, 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ON
COMPENSATION DECISIONS
Mr. Deupree, an Independent Director and a member of the Compensation
Committee of the Company, is a Managing Director of Morgan Keegan and was
President of Morgan Keegan from 1985 to 1996. Morgan Keegan was a managing
underwriter of the Company's initial public offering and certain follow-on
public equity offerings and received investment banking fees and other
compensation in connection with those public offerings. Morgan Keegan has also
received fees in connection with providing financial advisory services to the
Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for establishing and
administering compensation policies, establishing salaries of and awarding
performance-based bonuses to the Company's executive officers, and determining
awards of restricted stock and grants of stock options under the Company's stock
plans. The Compensation Committee's policy is to devise and implement
compensation for the Company's officers and employees which shall be
commensurate with their position and determined with reference to compensation
paid to similarly situated employees and officers of companies which are deemed
by the Compensation Committee to be comparable to the Company. The Compensation
12
<PAGE> 15
Committee of the Board of Directors is comprised of Messrs. Thomas, Deupree and
McLeary. No members of the Compensation Committee are employees or officers of
the Company or any subsidiary of the Company.
BASE COMPENSATION AND BONUSES
None of the Company's executive officers was paid cash compensation by the
Company prior to December 31, 1994. Effective January 1, 1995, each of the
Company's executive officers (except for Phillip H. McNeill, Jr. and J. Ronald
Cooper, both of whom became employees in 1997) became an employee of a
wholly-owned subsidiary of the Company, and the Company began to pay
compensation to all of its executive officers at and after such date. The
Compensation Committee approved the payment of annual base salaries to the
Company's executive officers, through a wholly-owned subsidiary of the Company,
effective January 1, 1997, as follows:
<TABLE>
<CAPTION>
Executive Officer Annual Base Salary
----------------- ------------------
<S> <C>
Phillip H. McNeill, Sr. $225,000
Chairman of the Board and
Chief Executive Officer
David L. Levine $150,000
President and Chief
Operating Officer
Howard A. Silver $145,000
Executive Vice President,
Secretary, Treasurer and
Chief Financial Officer
Phillip H. McNeill, Jr. $110,000
Executive Vice President-
Development
J. Ronald Cooper $ 88,577
Vice President, Controller,
Assistant Secretary and
Assistant Treasurer
</TABLE>
In addition to the above-listed annual base compensation for 1997, the
Compensation Committee approved and implemented a bonus award procedure for 1997
to grant Performance Shares (the "1997 Performance Shares") under the 1994 Plan,
subject to the meeting of certain performance goals, to the Company's executive
officers. The 1997 Performance Shares were to be earned, if at all, based on the
achievement of certain levels of percentage increase in the Company's funds from
operations per share ("FFO"). The National Association of Real Estate Investment
Trusts, Inc. ("NAREIT") defines FFO as being net income, computed in accordance
with generally accepted accounting principles, excluding gains or losses from
debt restructurings and sales of property, plus depreciation of real property
(including furniture and equipment) and after adjustments for unconsolidated
partnerships, joint ventures and minority interests). The grant of 1997
Performance Shares would be calculated as being a number of shares of the
Company's Common Stock having a fair market value on the date of settlement
equal to 125% multiplied by 20% of the FFO in excess of FFO (before the grant of
such bonus) of $1.46 per share plus $500,000. No 1997 Performance Shares would
be earned if 1997's FFO (before the grant of such bonus) is less than $1.29 per
share. Because 1997's FFO exceeded FFO for 1996 at $1.22 per share, a total of
Performance Shares which were, valued in the aggregate at $1,019,040 was earned
by the above-named executive officers as their bonuses for the 1997 fiscal year.
Total bonuses earned by the Company's above-named executive officers for the
1997 fiscal year, including cash awards, was $1,401,553.
13
<PAGE> 16
The Compensation Committee will determine annually a similar bonus plan
for the Company's officers, with any future stock bonus awards to be issued to
the executive officers through the 1994 Plan. The Compensation Committee decided
to award Performance Shares, rather than shares of restricted stock, in
recognition of 1997 year-end bonuses under the 1994 Plan as a way of maintaining
a direct link between the achievement of corporate goals and the individual
performance of the Company's executive officers.
Although none of the Company's executive officers receives annual
compensation in excess of $1 million, the Company continues to study the cap on
tax deductibility of compensation in excess of that amount established under the
Omnibus Budget Reconciliation Act of 1993. The Company has taken steps to allow
for the grant of stock options and certain other stock incentive awards that
qualify as performance-based compensation exempt from the cap.
CHIEF EXECUTIVE OFFICER COMPENSATION
In determining the appropriate compensation for Phillip H. McNeill, Sr.,
the CEO, the Compensation Committee is guided by the Company's performance,
competitive practices, and the Compensation Committee's policy, as discussed
above, of determining compensation with reference to the compensation paid to
similarly situated executives of comparable companies. Appropriate adjustments
in the compensation of the Company's chief executive officer are considered
concurrently with similar adjustments made for the Company's other executive
officers.
In devising Mr. McNeill's total cash compensation package for the
Company's 1997 fiscal year, the Compensation Committee built upon the Company's
traditional compensation policies, adapted to the Company's competitive
environment of similar publicly-traded REITs and as originally derived from the
Compensation Committee's review of cash compensation levels for chief executive
officers of such similar REITs as reported in NAREIT's 1995 and 1996 surveys of
executive compensation. Based upon such considerations and whether the
achievement of certain targeted goals, particularly an annual increase in Funds
From Operations ("FFO") per share, were met, the Compensation Committee adopted
and approved $225,000 as the appropriate base salary to be paid to Mr. McNeill
during the 1997 fiscal year. This base salary level was identical to that
approved for Mr. McNeill for the Company's 1996 fiscal year. The Compensation
Committee's decision was reached on the basis that FFO per share remained
stable, with no significant growth, between the 1996 and 1997 fiscal years.
Through such mechanisms, the Compensation Committee intends to maintain a strong
linkage between the Company's chief executive officer's compensation and
corporate and individual performance.
The bonus award procedure discussed above under "Base Compensation and
Bonuses" will be applied to Mr. McNeill and the Company's other executive
officers during the Company's 1998 fiscal year.
This report has been submitted by the members of the Compensation
Committee.
James A. Thomas, III
William W. Deupree
Joseph W. McLeary
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the change in the Company's shareholder
return on the Company's Common Stock for the period February 23, 1994, which was
the first day the Company's Common Stock traded on The Nasdaq Stock Market,
through December 31, 1997, with the changes in the Standard & Poor's 500 Stock
Index (the "S&P 500 Index") and the NAREIT Equity Index for the same period,
assuming a base share price of $100 for the Common Stock and each index for
comparative purposes. Total return equals appreciation in stock price plus
dividends paid, and assumes that all dividends are reinvested. The performance
graph is not necessarily indicative of future investment performance.
<TABLE>
<CAPTION>
Measurement Period NAREIT All
(Fiscal Year Covered) Equity Inns, Inc. S&P 500 Equity REIT Index
<S> <C> <C> <C>
2/22/94 100.00 100.00 100.00
12/31/94 117.00 99.85 96.73
12/31/95 133.55 137.37 111.37
12/31/96 164.99 168.77 151.15
12/31/97 202.69 225.10 181.78
</TABLE>
15
<PAGE> 18
PROPOSAL TWO - AMENDMENT TO ARTICLE 5 OF THE CHARTER
The Board of Directors has unanimously approved and recommends to the
Shareholders that they approve and adopt Proposal Two, the proposed amendment to
Article 5 of the Charter to increase the number of authorized shares of Common
Stock from 50 million shares to 100 million shares. The proposed amendment to
Article 5 is set forth in Exhibit A to this Proxy Statement.
The Charter currently authorizes the issuance of up to 50 million
shares of Common Stock and up to 10 million shares of Preferred Stock. As of
March 16, 1998, the Company's Common Stock structure was as follows, with no
shares of Preferred Stock being issued and outstanding:
<TABLE>
<CAPTION>
Number of
Shares
---------
<S> <C>
Shares issued and outstanding...................................... 35,585,663
Shares issuable upon redemption of Units (1)....................... 1,842,520
Shares reserved for issuance pursuant to the Directors'
Plan............................................................. 100,000
Shares reserved for issuance pursuant to the 1994
Plan which options have not been exercised....................... 501,000
----------
Total shares of Common Stock issued
or issuable............................................... 38,029,183
==========
</TABLE>
- ---------------
(1) Units may be redeemed, at the option of the holders, on a one-for-one basis
for shares of the Company's Common Stock or, at the Company's sole option,
for cash.
PURPOSE AND EFFECTS OF PROPOSAL TWO
The Company has issued an aggregate of 34,395,856 shares in its public
equity offerings, the net proceeds from which have been used, through the
Partnership, to acquire additional hotel properties. In addition, the Company
has issued 65,000 restricted shares to its officers and directors. An aggregate
of 2,452,520 shares are reserved for issuance upon redemption of Units or the
exercise of grants under the 1994 Plan and the Directors' Plan.
The purpose of Proposal Two is to ensure that additional shares of
Common Stock will be available, if and when needed, for periodic issuances for
any proper purpose approved by the Board of Directors (including, without
limitation, issuances to raise additional equity capital or to effect
acquisitions, to provide for redemption of Units for Common Stock, and for other
corporate purposes). The Board of Directors believes that the availability of
the additional authorized shares of Common Stock for issuance upon approval of
the Board of Directors for any proper purpose, without the necessity for, or the
delay inherent in, a meeting of the Company's shareholders (except as may be
required by applicable law, by regulatory authorities, or by the policies, rules
and regulations of the NYSE or such other stock exchange on which the Common
Stock may then be listed), will be beneficial to the Company and its
shareholders by providing the Company with such flexibility.
If Proposal Two is approved by the Shareholders, the Board of Directors
does not presently intend to seek further shareholder approval with respect to
any particular issuance of shares, unless required by applicable law, by
regulatory authorities, or by the policies, rules and regulations of the NYSE or
such other stock exchange on which the Common Stock may then be listed.
16
<PAGE> 19
Shareholders do not have any preemptive or similar rights to subscribe
for or purchase any additional shares of Common Stock that may be issued in the
future. Therefore, future issuances of Common Stock, depending upon the
circumstances, may have a dilutive effect on the earnings per share, book value
per share, voting power and other interests of the Company's shareholders.
In addition to the purpose of Proposal Two set out above, the proposed
increase in the authorized number of shares of Common Stock will have certain
anti-takeover effects on the Company, although that is not its purpose. The
Board of Directors could use the additional shares of Common Stock to discourage
an attempt to change control of the Company, even though a change in control
might be perceived as desirable by some shareholders, by selling a substantial
number of shares of Common Stock to persons who have an arrangement with the
Company concerning the voting of such shares, or by distributing shares of
Common Stock, or rights to receive such stock, to the shareholders. In this
respect, certain corporations have issued as a dividend to their common
shareholders preferred stock or rights to acquire common stock or preferred
stock having terms designed to encourage negotiated rather than unilateral
takeover proposals and to protect against the adverse consequences of certain
abusive takeover tactics such as open market accumulation programs and partial
and front-end loaded takeovers and freezeouts. The additional shares of Common
Stock would be available for such purposes. The Board of Directors, however, has
no present intention of issuing any shares of Common Stock or rights to acquire
shares of Common Stock for such purposes. The ability to issue shares of Common
Stock also would allow the Board of Directors to issue shares only to
shareholders supportive of management's position. This could provide management
with the means to block a business combination considered desirable by some
shareholders. The Board of Directors is not aware of any attempt, or
contemplated attempt, to acquire control of the Company, and Proposal Two is not
presented to the Shareholders for the purpose of creating an anti-takeover
device.
Unless otherwise required by applicable law or regulation, the
additional shares of Common Stock to be authorized as described in Proposal Two
will be issuable without further authorization by vote or consent of the
Company's shareholders and on such terms and conditions as may be determined by
the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF PROPOSAL TWO.
PROPOSAL THREE - DELETION OF ARTICLE 7 OF THE CHARTER
The Board of Directors has unanimously approved and recommends to the
Shareholders that they approve and adopt Proposal Three, the proposed amendment
to the Charter to delete Article 7 of the Charter (the "Debt Limitation").
Article 7 of the Charter currently provides as follows:
7. Limitation on Indebtedness. The Corporation may not incur or
allow to exist as the end of any month Indebtedness (as defined below)
in an amount in excess of forty-five percent (45%) of the
Corporation's investment in hotel properties, at its cost, which cost
includes the fair market value of any equity securities issued in
connection with the acquisition of hotel properties, after giving
effect to the Corporation's use of proceeds from any indebtedness.
"Indebtedness" of the Corporation shall mean all obligations of the
Corporation, its subsidiaries or any partnership in which the
Corporation serves as general partner, for borrowed money (including
all notes payable and drafts accepted representing extensions of
credit) and all obligations evidenced by bonds, debentures, notes or
other similar instruments on which interest charges are customarily
paid, including obligations under capital leases.
The Debt Limitation was developed at the time of the Company's initial
public offering in March 1994 (the "IPO") and was amended by action of the
shareholders at the Company's 1995 annual meeting on April 18, 1995. Since the
IPO, the Company has acquired, through the Partnership, a total of 89 hotels,
which acquisitions were financed principally with borrowings and with proceeds
from the Company's public offerings of Common
17
<PAGE> 20
Stock. The Company's ability to raise equity capital is dependent, in large
part, upon capital market conditions, including the general levels of interest
rates. The Board of Directors believes that adoption of Proposal Three will
increase the Company's ability to obtain capital on advantageous terms to take
advantage of acquisition and development opportunities. Also, since the IPO, a
number of other hotel REITs and entities have been formed for purposes similar
to the Company, and the Company believes the market for hotel acquisitions has
become more competitive. Many of these entities have no corporate limitation on
their ability to incur indebtedness. As competition for acquisitions has
increased, the ability of a potential buyer to close an acquisition without a
financing contingency can be an important advantage in acquiring hotel
properties on favorable terms.
The Company believes that it is important for the Company to have
flexibility in financing the acquisitions of hotel properties. The Company
believes that as the Company continues to grow it will have access to a range of
financing alternatives, including public and private issuances of debt
securities as well as continued equity financings. Management believes that the
selective use of longer term debt can lower the Company's overall cost of
capital and increase shareholder value. Management believes that adoption of
Proposal Three will permit the Company to access debt financing sources more
readily while maintaining a policy limiting indebtedness to a level which
management believes is prudent.
If Proposal Three is approved by the Shareholders, the Board of
Directors intends to adopt a policy limiting the amount of indebtedness that the
Company will incur to an amount not in excess of approximately 45% of the
Company's investment in hotel properties, at its cost, which cost includes the
fair market value of any equity securities issued in connection with the
acquisition of hotel properties, after giving effect to the Company's use of
proceeds from any indebtedness. This policy of the Board of Directors will
implement the same limitation currently imposed under the Charter. As of March
5, 1998, the Company had outstanding indebtedness of approximately $233.5
million, including approximately $147.6 million under the Unsecured Line of
Credit and approximately $85.9 million of other mortgage indebtedness.
If Proposal Three is approved by the Shareholders, there will be no
limitation in the Charter or Bylaws on the Company's ability to incur
indebtedness, and the Board of Directors, in its discretion, will be able to
change its policy on limiting debt without shareholder approval. Accordingly,
the elimination of the Debt Limitation from the Charter, while providing
flexibility in the timing and amount of borrowings, will make it possible for
the Company, with the prior approval of the Board of Directors, to increase the
Company's level of indebtedness from time to time, beyond that currently
permitted in the Charter. However, the elimination of the Debt Limitation in the
Charter will increase the risk that the Company could become more highly
leveraged, resulting in an increase in debt service that could adversely affect
the Company's cash flow and ability to make distributions to its shareholders
and create an increased risk of default on its obligations and increased risk of
foreclosure on its property securing debt.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF PROPOSAL
THREE.
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PROPOSAL FOUR - AMENDMENT TO ARTICLE 14 OF CHARTER
The Board of Directors has unanimously approved and recommends to the
Shareholders that they approve and adopt Proposal Four, the proposed amendment
to the Charter that would conform Section 14(c) of Article 14 of the Charter to
other provisions in the Charter, which have been previously amended by action of
the Company's shareholders, relating to the Company's ability to preserve its
status as a REIT. If approved, Proposal Four would add the clause "so long as
such actions do not prohibit the settlement of any transactions entered into
through the facilities of any national securities exchange registered under the
Exchange Act or of the national market system of a national securities
association registered under the Exchange Act," to the end of the first sentence
of Section 14(c) of the Charter. Such proposed amendment is set forth as Exhibit
B to this Proxy Statement.
Article 14 of the Charter currently contains certain provisions (the
"Share Transfer Restrictions") that restrict the transfer of shares of the
Company's capital stock if, following such transfer, any person would own at any
time, directly or indirectly, in the aggregate more than 9.9% of the outstanding
shares of capital stock of the Company, including any shares deemed to be
constructively owned by such persons under applicable provisions of the Internal
Revenue Code (the "Ownership Limit"). The Share Transfer Restrictions, which are
similar to provisions found in the charter documents of many REITs, are designed
to help the Company monitor compliance with certain REIT tax law requirements,
which provide that not more than 50% of the Company's outstanding capital stock
can be owned, directly or indirectly, by five or fewer persons.
The proposed amendment clarifies that the Company's authority to exercise
any remedies available to it to protect the Company and the interests of its
shareholders by preserving its REIT status and by ensuring compliance with the
Ownership Limit is subject to the NYSE's requirements that any such remedies so
exercised do not prohibit the settlement of any transactions entered into
through the facilities of any national securities exchange registered under the
Exchange Act (e.g., the NYSE) or of the national market system of a national
securities association registered under the Exchange Act. Recent amendments to
the Charter, which were approved and adopted previously by the Company's
shareholders at the Company's annual meetings of shareholders in May 1996 and
April 1997, included amendments to ensure that certain other provisions of the
Share Transfer Restrictions would not prohibit the settlement of any
transactions entered into through the facilities of a national securities
exchange such as the NYSE.
Prior to September 9, 1996, the Company's Common Stock was traded on The
Nasdaq Stock Market. Since such date, the Company's Common Stock has been traded
on the NYSE. The Board of Directors believes it is important to assure the
investment community and the NYSE that the Company's remedies relating to the
protection of the Share Transfer Restrictions in the Charter, which are designed
to safeguard the Company's status as a REIT, do not prohibit the settlement of
any transactions through the facilities of such exchange. Furthermore, the NYSE
has advised the Company that the NYSE currently requires any REIT listed or
desiring to be listed on the NYSE and having share transfer restrictions in its
charter to clarify that such restrictions, including similar remedies provisions
of such share transfer restrictions, will not prohibit the settlement of any
transactions entered into through the NYSE. Adoption of Proposal Four would
place the Company fully in compliance with the listing requirements of the NYSE
regarding share transfer restrictions in REIT charters.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL FOUR.
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<PAGE> 22
PROPOSAL FIVE - AMENDMENT TO DIRECTORS' PLAN
The Board of Directors adopted the Directors' Plan to attract and
retain Independent Directors. On March 16, 1998, the Board of Directors adopted
an amendment to the Directors' Plan that would permit Independent Directors to
elect to receive all or a portion of annual retainer fees and meeting fees in
the form of shares of Common Stock (the "Stock Purchase Program"). The value of
Common Stock received by an Independent Director in lieu of cash fees will be
125% of the amount of the fees otherwise payable to the Independent Director.
The Board of Directors believes that such an arrangement will provide increased
opportunities for stock ownership by the Independent Directors, thereby further
associating the interests of the Independent Directors with the interests of the
Company's shareholders. The Board of Directors' amendment to the Directors' Plan
also eliminated certain provisions of the Directors' Plan no longer required by
Section 16 of the Exchange Act and the rules thereunder. Consistent with the
broader scope of the Directors' Plan following the amendment, the full name of
the Directors' Plan effective March 16, 1998 is the Equity Inns, Inc. Directors'
Compensation Plan.
The following paragraphs summarize the more significant features of the
Directors' Plan. The summary is subject, in all respects, to the terms of the
Directors' Plan. The Company will provide promptly, upon request and without
charge, a copy of the full text of the Directors' Plan to each person to whom a
copy of this Proxy Statement is delivered.
SUMMARY OF THE DIRECTORS' PLAN
Eligibility. The Directors' Plan provides for the award of options to
purchase Common Stock to each Independent Director of the Company. No director
who is an employee of the Company or an affiliate is eligible to participate in
the Directors' Plan.
Options. The Directors' Plan provides that each Independent Director
will be awarded an option for 1,000 shares of Common Stock at the first Board of
Directors Meeting following each annual meeting of the Company's shareholders.
Options have been awarded under the Directors' Plan since the April 1995 annual
meeting. The price per share of Common Stock purchased on the exercise of an
option will be the fair market value of a share of Common Stock on the date the
option is granted. The exercise price must be paid in a single sum, in cash.
Options issued under the Directors' Plan are exercisable for ten years from the
date of grant. The maximum number of shares of Common Stock that can be issued
pursuant to the exercise of options under the Directors' Plan is 50,000.
Additional shares may be issued under the Directors' Plan pursuant to the Stock
Purchase Program, discussed below, if the proposed amendment is approved by the
Company's shareholders. The share authorization relating to options, the terms
of outstanding options, and the number of shares for which options will
thereafter be awarded shall be subject to adjustment in the event of a stock
dividend, stock split, reclassification, recapitalization or other similar
event.
An option granted under the Directors' Plan may be exercised in whole
or in part at any time on or after the date of grant, whether or not a director
is a member of the Board on the exercise date.
No income will be recognized by an Independent Director at the time an
option is granted under the Directors' Plan. The exercise of an option generally
is a taxable event that requires the holder to recognize, as ordinary income,
the difference between the option price and the shares' fair market value on the
date of exercise. The Company will be entitled to claim a federal income tax
deduction on account of the exercise of an option. The amount of the deduction
is equal to the ordinary income recognized by the holder.
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<PAGE> 23
Stock Purchase Program. If the proposed amendment to the Directors'
Plan is approved by shareholders, the Stock Purchase Program will allow each
Independent Director to elect to receive payment of all or part of his retainer
fee, meeting fees, or both in the form of Common Stock. The value of any Common
Stock received in lieu of cash retainer or meeting fees will equal 125% of the
amount of the fees otherwise payable to the Independent Director.
Common Stock will be issued to each Independent Director who
participates in the Stock Purchase Program on the dates that his retainer fee
and meeting fees are otherwise payable. The number of shares issued will be
determined by dividing 125% of the portion of the fees subject to the
Independent Director's election by the fair market value of the Common Stock on
the day preceding the date of payment. The value of a fractional share, and the
remainder of the Independent Director's fees (if any), will be paid in cash.
Elections to purchase Common Stock under the Stock Purchase Program
with respect to retainer fees must be made prior to the first month of the
quarter for which cash fees would be payable absent the election and, with
respect to meeting fees, must be made prior to the first day of the month in
which the meeting for which cash fees would be payable absent the election is
held. All such elections under the Stock Purchase Program are subject to the
approval of the Board of Directors. Elections to purchase Common Stock under the
Stock Purchase Program will be effective with respect to fees payable on and
after the election date. An Independent Director will be permitted to (i)
increase or decrease the fees that will be applied to purchase Common Stock and
(ii) cease purchases of Common Stock.
No Stock Purchase Program election may be made with respect to fees
payable after first Board of Directors' meeting following the annual meeting of
the Company's shareholders in 2004.
Shareholder Rights. An Independent Director will have no rights as a
shareholder with respect to shares of Common Stock subject to an option until
the option is exercised, and no rights as a shareholder with respect to
participation in the Stock Purchase Program until the date of issuance of shares
of Common Stock pursuant to the Stock Purchase Program.
Amendment and Termination. The Directors' Plan currently provides that
the Board may amend or terminate the Plan, but the Plan may not be amended more
than once every six months other than to comport with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder. The Directors' Plan also provides that an amendment will not become
effective without shareholder approval if the amendment changes the eligibility
requirements, increases the benefits that may be provided, or increases the
number of shares that may be issued under the Directors' Plan. Consistent with
recent changes to Section 16 of the Exchange Act and rules thereunder, if the
proposed amendment is approved by shareholders, the Directors' Plan will provide
that no amendment to the Directors' Plan will become effective without
shareholder approval if the amendment materially changes the eligibility
requirements or increases the benefits that may be provided under the Directors'
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF PROPOSAL FIVE.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
The Board of Directors will provide for presentation of proposals by the
Company's shareholders at its annual meeting of shareholders for 1998, provided
that such proposals are submitted by eligible shareholders who have complied
with the relevant regulations of the SEC regarding shareholder proposals and the
Company's bylaws, a copy of which is available upon written request from the
Secretary of the Company. Shareholder proposals intended to be submitted for
presentation at the Company's annual meeting of shareholders for 1999 must be in
writing and must be
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<PAGE> 24
received by the Company at its executive offices on or before January 7, 1999
for inclusion in the Company's proxy statement and the form of proxy relating to
the 1999 annual meeting; provided, however, that if the 1999 annual meeting is
advanced by more than 30 days or delayed for more than 60 days from the date of
the first anniversary of the 1998 annual meeting, such written notice must be
received by the Company no earlier than the 90th day prior to the date of the
1999 annual meeting and no later than the later of the 60th day prior to such
meeting or the tenth day after the first public announcement of the date of such
meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. has served as independent public accountants and
auditors for the Company and its subsidiaries for the year ended December 31,
1997, and the Board of Directors has selected Coopers & Lybrand L.L.P. to
continue to so serve for the year ending December 31, 1998, until and unless
changed by action of the Board of Directors.
A representative of Coopers & Lybrand L.L.P. is expected to be present at
the Annual Meeting. Such representative will have the opportunity to make a
statement if he desires to do so and is expected to be available to respond to
appropriate questions.
OTHER MATTERS
The Board of Directors knows of no other business to be brought before the
Annual Meeting. In the event that any other matters requiring a vote of the
Shareholders are properly brought before the Annual Meeting, the proxies will be
voted on such matters in accordance with the judgment of the persons named as
proxies therein, or their substitutes, present and acting at the meeting.
The Company will furnish to each beneficial owner of Common Stock entitled
to vote at the Annual Meeting, upon written request to Howard A. Silver, the
Company's Executive Vice President, Secretary, Treasurer and Chief Financial
Officer, at 4735 Spottswood, Suite 102, Memphis, Tennessee 38117, telephone
(901) 761-9651, a copy of the Company's Annual Report on Form 10-K for the
Company's fiscal year ended December 31, 1997, including the financial
statements and financial statement schedules filed by the Company with the SEC.
BY ORDER OF THE BOARD OF DIRECTORS
HOWARD A. SILVER, SECRETARY
April 2, 1998
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<PAGE> 25
EXHIBIT A
PROPOSED AMENDMENT TO ARTICLE 5 OF THE CHARTER
The first paragraph of Article 5 of the Charter is hereby amended by
deleting in full the words and number "fifty million (50,000,000) shares of
Common Stock" and by inserting in lieu thereof the words and number "one hundred
million (100,000,000) shares of Common Stock," so that such first paragraph of
Article 5, as so amended, would read in its entirety as follows:
5. Authorized Capital Stock. The total number of shares of stock
which the Corporation has authority to issue is one hundred
million (100,000,000) shares of Common Stock, $.01 par value per
share, and ten million (10,000,000) shares of Preferred Stock,
$.01 par value per share.
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<PAGE> 26
EXHIBIT B
PROPOSED AMENDMENT TO ARTICLE 14 OF THE CHARTER
Article 14 of the Charter is hereby amended by adding the clause "so long
as such actions do not prohibit the settlement of any transactions entered into
through the facilities of any national securities exchange registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") or of the
national market system of a national securities association registered under the
Exchange Act" to the end of the first sentence of Section 14(c) thereof, so that
such Section 14(c) of Article 14, as so amended, would read in its entirety as
follows:
(c) Remedies Not Limited. Nothing contained in this Article 14 shall
limit the authority of the Corporation to take such other action
as it deems necessary or advisable to protect the Corporation and
the interests of its shareholders by preservation of the
Corporation's status as a REIT and to ensure compliance with the
Ownership Limit so long as such actions do not prohibit the
settlement of any transactions entered into through the
facilities of any national securities exchange registered under
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or of the national market system of a national securities
association registered under the Exchange Act.
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<PAGE> 27
APPENDIX A
PROXY
EQUITY INNS, INC.
4735 SPOTTSWOOD, SUITE 102, MEMPHIS, TENNESSEE 38117
ANNUAL MEETING OF SHAREHOLDERS--MAY 14, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Phillip H. McNeill, Sr. and Howard A.
Silver, or either of them, with full power of substitution in each, proxies (and
if the undersigned is a proxy, substitute proxies) to vote all Common Stock of
the undersigned in Equity Inns, Inc. at the Annual Meeting of Shareholders to be
held at the Homewood Suites hotel, 7855 Wolf River Parkway, Germantown,
Tennessee, on Thursday, May 14, 1998 at 10:00 a.m. Central Time, and at any
adjournments thereof, as specified below:
1. ELECTION OF DIRECTOR ("PROPOSAL ONE")
[ ] CLASS I -- TERM EXPIRING 2001 - FOR THE NOMINEE LISTED BELOW
Phillip H. McNeill, Sr.
[ ] WITHHOLD AUTHORITY TO VOTE FOR NOMINEE LISTED
2. PROPOSAL TO AMEND ARTICLE 5 OF THE COMPANY'S CHARTER TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 50 MILLION SHARES TO 100
MILLION SHARES ("PROPOSAL TWO")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO DELETE ARTICLE 7 OF THE COMPANY'S CHARTER, WHICH LIMITS THE
COMPANY'S CONSOLIDATED INDEBTEDNESS TO 45% OF THE COMPANY'S INVESTMENT IN
HOTEL PROPERTIES, AT ITS COST ("PROPOSAL THREE")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE> 28
4. PROPOSAL TO AMEND ARTICLE 14(C) OF THE COMPANY'S CHARTER TO PROVIDE, IN
ESSENCE, THAT NOTHING CONTAINED IN THE CHARTER SHALL LIMIT THE
AUTHORITY OF THE COMPANY TO TAKE SUCH OTHER ACTION AS IT DEEMS
NECESSARY OR ADVISABLE TO PROTECT THE COMPANY AND THE INTERESTS OF ITS
SHAREHOLDERS BY PRESERVATION OF THE COMPANY'S STATUS AS A REAL ESTATE
INVESTMENT TRUST, SO LONG AS SUCH ACTIONS DO NOT PROHIBIT THE
SETTLEMENT OF ANY TRANSACTIONS ENTERED INTO THROUGH THE FACILITIES OF
ANY NATIONAL SECURITIES EXCHANGE ("PROPOSAL FOUR")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL TO AMEND THE COMPANY'S NON-EMPLOYEE DIRECTORS' STOCK OPTION
PLAN (THE "DIRECTORS PLAN") TO, AMONG OTHER THINGS, PERMIT INDEPENDENT
DIRECTORS TO ELECT TO RECEIVE RETAINER AND MEETING FEES IN THE FORM OF
COMMON STOCK AND INCREASE THE NUMBER OF SHARES THAT MAY BE ISSUED UNDER
THE DIRECTORS' PLAN TO ALLOW FOR SUCH ELECTIONS ("PROPOSAL FIVE").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies (and if the undersigned is a proxy,
any substitute proxies) are authorized to vote upon such other business as may
properly come before the meeting.
[Please sign and date on reverse side of this proxy.]
<PAGE> 29
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS ONE, TWO, THREE, FOUR AND FIVE.
Dated: , 1998
-----------------------
Please sign name exactly as it
appears on the left. When shares
are held by joint tenants, both
should sign. When signing as
attorney, as executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
-------------------------------------
Signature
------------------------------------
Title
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE.
